The tax year runs from 6 April to 5 April the next year. This means that the most crucial UK tax deadline occurs every April.
That’s because there exist various annual allowances and tax reliefs that you need to make use of to legally mitigate your income tax bill and stop taxes devouring your investment returns.
Most of these are ‘use it or lose it’ allowances with a 5 April deadline.
It’s no good bemoaning in June that you should have filled your ISA allocation by 5 April, but you were too preoccupied by the Donald Trump Show or the Six Nations rugby!
No point cursing if you create a £500 capital gains tax liability in July that you might have defused in March!
Ch-ch-changes
Of course you read Monevator. You know this kind of stuff. But it’s still all too easy to overlook something.
Especially when the tax rules keep changing! For example, the capital gains allowance was halved in the 2024-25 tax year to just £3,000.
So let’s run through a checklist of what to think about as the UK tax deadline draws near.
Follow the links in each section to go deeper.
ISA allowance
The annual ISA allowance is the maximum amount of new money you can put each year into the range of tax-free savings and investment accounts that comprise the ISA family.
The ISA allowance for the current tax year to 5 April is £20,000.
You cannot carry forward or rollback this ISA allowance. What you don’t use in the tax year is lost forever.
ISAs are a superb vehicle for growing your wealth tax-free. But the fiddly rules – seemingly made up by a bureaucrat with a grudge against mankind – are subject to change over time.
Watch out for rule tweaks
For example, as of the 2024-25 tax year you can now open multiple ISAs of the same type in the same tax year.
Previously you could only open one new ISA of each type in a tax year.
Note though that you can only contribute £20,000 in total to your ISAs a year – old or new. And it’s down to you to keep track of your running total.
Also, you can still only pay into one Lifetime ISA per year. The maximum contribution here is £4,000. This counts towards your £20,000 annual ISA allowance.
Another change is that you can now make partial ISA transfers – although not all platforms will accept them. (Under the old rules, if you contributed to an ISA and then wanted to transfer the funds to a different provider in the same tax year, you had to transfer all of that year’s ISA contributions).
And another: fractional shares can now be held in a stocks and shares ISAs. They’re listed as ‘fractional interests’ on this page of qualifying investments.
My co-blogger wrote the definitive guide to the ISA allowance.
Pension contributions annual allowance
There is a limit to how much money you can contribute to your pension in a given tax year while still receiving tax relief on those contributions.
It is sometimes referred to as the pension annual allowance.
Despite massive speculation with every Budget, the allowance is still £60,000.1
However the rules about inheritance tax and pensions were thrown into the Magimix blender in late 2024:
Note that saving into a pension is mostly a tax-deferral strategy. That’s because you’re eventually taxed on pension withdrawals, unlike money you take out of an ISA tax-free.
In theory this makes ISAs and pensions equivalent from the perspective of tax.
In practice though, the fact that you can also draw a special tax-free lump sum from your pension gives pensions an edge in tax-terms – albeit at the cost of locking away your money for years.
Weigh up the pros and cons of each tax wrapper. We think most people should do a bit of both.
You can reduce your marginal tax rate by making pension contributions, if you can afford to go without the money today. Those on higher-rate tax bands should definitely do the maths:
Personal savings allowance
Under the personal savings allowance:
- Basic-rate taxpayers can earn £1,000 per year in savings interest without having to pay tax.
- Higher-rate taxpayers can earn £500 per year.
- Additional rate taxpayers don’t get any personal savings allowance.
Back when interest rates were very low, these savings allowances seemed quite generous.
But rising rates have changed everything. Even interest on unsheltered emergency funds can now take you over the personal savings allowance and see some of your interest being taxed.
Redo your sums. Higher-rate tax payers might look into holding low-coupon short duration gilts instead. Recently these have offered a lower-taxed alternative to savings interest.
Dividend allowance
As of 6 April 2024, the annual tax-free dividend allowance was reduced to £500.
Dividends you receive within the tax-free dividend allowance are not taxed. But breach the allowance and you’ll pay a special dividend tax rate on the rest, according to your income tax band.
You can avoid the whole palaver by investing inside an ISA or pension.
Capital gains tax allowance
Everyone has an annual capital gains tax allowance, or ‘annual exempt amount’ in the lingo of HMRC.
This allowance was halved to £3,000 from 6 April 2024.
It is (for now) frozen at this level.
Capital gains tax is levied on the profits you make when you sell or transfer most assets. These assets include everything from shares and buy-to-let properties to antiques and gold bars.
You can shield your gains from capital gains tax by investing within ISAs and pensions. Go re-read the relevant bits above if you skimmed them!
EIS and VCT investments
You can also reduce your taxes by investing in Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS).
These vehicles are mostly marketed at wealthy high-earners for whom the large income tax breaks are attractive.
But be aware that these tax reliefs come with all kinds of risks, rules, and regulations.
VCTs
VCTs are venture capital funds run by professional managers who make investments into startup companies.
But somewhat quixotically, VCTs don’t even pretend to try to deliver high venture-style returns for investors.
Instead they aim to return cash via steady tax-free dividends.
You can invest up to £200,000 a year into VCTs. You must hold them for at least five years to keep your 30% income tax relief.
VCT fund charges are invariably expensive, and the returns mostly mediocre – especially if you back out the tax reliefs.
EIS
EIS investing is even riskier. Qualifying companies are usually very young, and many investors buy into them via crowdfunding platforms rather than professional fund managers.
The quality of these EIS opportunities is extremely variable, and information usually scanty.
And while there have been a few big crowdfunded winners, the majority do poorly and often go to zero.
If you’re a baller who buys Lamborghinis before breakfast, you may already know you can put up to £1m a year into EIS investments. (Up to £2m if you’re investing in ‘knowledge intensive companies’).
Again, you can knock 30% of your EIS investment amount from your income tax bill – and there are other reliefs should things go wrong.
You must hold EIS investments for three years to qualify for the tax relief.
Most people shouldn’t put more than fun money into EIS or even VCT schemes, in our opinion. Certainly not unless they’re very sophisticated investors or getting excellent financial advice.
- The risks of Venture Capital Trusts
- What are Enterprise Investment Schemes?
- Running a 31-fold gain in pursuit of a 100-bagger
Check in on your tax band and personal allowances
The rate of income tax you pay depends on your total income from all sources. This includes salary, interest, dividends, pensions, property letting, and so on.
You add up all this income to get your total income figure.
You then subtract your personal allowance from the total to see which tax bracket you fit into.
Everyone starts with the same personal allowance, regardless of age:
- This personal allowance is currently £12,570
Your personal allowance may be bigger if you qualify for Married Couple’s Allowance or Blind Person’s Allowance.
However the Personal Allowance goes down by £1 for every £2 of income above a £100,000 limit. It can go down to zero.
For England, Wales, and Northern Ireland, the income bands after deducting allowances are:
| Income Tax Rate | Income band |
| Starting rate for savings: 0% | £0-£5,000 |
| Basic rate: 20% | £0- £37,700 |
| Higher rate: 40% | £37,701-£125,140 |
| Additional 45% rate | £125,141 and above |
Source: HMRC
Note: If your non-savings taxable income is above the starting rate limit, then the starting savings rate does not apply to your savings income.
Scotland has its own income tax rates.
As we’ve seen above, there are further allowances and reliefs for income from certain sources – such as dividends and savings – that can reduce how much of that particular income is taxable.
You can take steps such as making additional pension contributions or having a spouse hold certain assets to further reduce your taxable income or the highest rate of tax you pay.
Don’t make the UK tax deadline into a crisis
Scrambling to exploit these allowances before the tax year ends is not only stressful – it’s financially suboptimal.
If you had cash lying around that you might have put into an ISA earlier in the year, for example, then it could have been earning a tax-free return for months already.
But don’t blush too hard if you find yourself in this position.
Most of us are similar, which is why we wrote this article – and why the financial services industry bombards us with ISA promotions every March.
Try to automate your finances to invest smoothly and intentionally over the year.
And remember that April also brings warmer weather and longer days. Life is about much more than money and taxes!
Save and invest hard, take sensible steps to mitigate your tax bill, and enjoy life like a billionaire with whatever you’ve got leftover.
Thanks for your article TI. I myself also had to consider the savings interest allowances this year because of the increases in interest rates on savings now. Thankfully I still fell under the threshold. This was for my emergency fund. I feel relieved that all my investments fall under my ISA and Pension now so it’s a lot less to think about until I actually start pulling on my pension in older life.
ALL HAIL THE £20,000 ISA LIMIT! This has made it a lot easier for me personally.
TFJ
@TI – thanks for this, and perfect timing.
I’ve taken my PCLS and will be squirrelling it away into my ISA over the next few years. But I have a question:
Assuming no other income from April 2024, if I have taken £12570 from my SIPP, using up my personal allowance, can I then take an additional £5000 from my SIPP, using my 0% Starting rate for savings? I.e. £17570 from the SIPP only, without incurring Income Tax? Or does that have to be from non-sheltered sources?
Basically, I want to empty my SIPP tax free (and legally, natch.) Hoping you (or someone) know the answer.
@Brod No, AIUI the starting rate for savings is for interest, not for pension income. So £12570 from your SIPP will be tax free.
@Brod
My understanding is NO – the savings allowances (£1k + <=£5k) must be from outside of SIPP. All pension income is taxed as per income, but no NI (ignoring tax free element)
If I’m wrong someone else will chip in.
I’m a few months behind you – much fun and games
@TI, I appreciate that you wrote that “saving into a pension is mostly a tax-deferral strategy” but are you underestimating the potential National Insurance savings?
If I pay into a salary sacrifice scheme I save NI on the money going in and pay none on the future pension income. Unless I have misunderstood something that is a 10% saving on earnings above £12,500 pa that are funnelled into a pension,
Thanks @Boltt, as I suspected.
Sounded a bit too good to be true 🙁
You wrote that: “Saving into a pension is mostly a tax-deferral strategy. That’s because you’re eventually taxed on pension withdrawals, unlike money you take out of an ISA tax-free.
“In theory this makes ISAs and pensions equivalent from the perspective of tax.”
A Lifetime ISA beats a DC pension for an eligible investor with £4,000 per annum to invest, as the government top-up of £1,000 is equivalent to the tax rebate on pension contributions but at age 60 (or when buying a first residential home with a mortgage) the full investment can be withdrawn with no further tax to pay.
This won’t be significant for most of us reading here, but it should be kept in mind for our offspring!
Re cgl allowance and bed and breakfasting rules – if I sell vanguard life strategy 80% Acc, can I buy the life strategy 80% income fund and not fall foul of the 30 day rule?
@all — Thanks for the suggestions and comments!
There’s a reason this article is a 1,500 word guide and it explicitly links to underlying articles. The full text of the underlying articles is approaching 20,000 words…
There are countless permutations and quirks with pretty much all these topics, so definitely go deep for more information. 🙂
@dangerousdave I am no tax expert but I think you’d be on very risky ground trying to claim that accumulation and income units in the same fund count as different funds. You could put 80% of the sale price in LS100 and keep 20% as cash or put the 20% into a bond fund I guess. You will make accounting much easier if you only buy income units in your non-tax protected share account. (You ultimately pay the same tax on acc and inc units but it’s easier to see what the income is with inc units) Relatedly you can sell one tracker and buy a different one tracking exactly the same index and be safely the right side of the 30 day rule
@dangerousdave They have different ISINs and therefore they are different. You’re fine.
Also think that’s fine dangerous Dave but…
Don’t think bed and breakfasting works well for life strategy funds. Takes a couple of days to sell, a couple of days to buy. By which time the market may have moved by more than the cgt you would pay. IMHO it only really works for etf’s or similar where you are buying / selling almost instantly the same underlying instrument
@ Seeking Fire. If you introduce some new money, you can use that to buy and sell at the same time and at the same price (unless swing pricing?). Once moved everything, then pay yourself back.
RE: the bed and breakfast rule, there’s was some discussion about this on the post below that you might fund interesting.
Personally I wouldn’t do anything that even *appears* potentially iffy, whatever the specifics of the rules appear to say.
But I’m paranoid, excessively law-abiding, and not a tax expert.
https://monevator.com/bed-and-breakfasting-and-cgt/#comments
It’s unquestionably a good idea to take advantage of tax allowances – we are pretty confident that there’s not going to be a future with a negative tax rate. What about using up amounts in lower bands now rather than potential higher bands later?
I’m in the position that I have around 75% of investments unsheltered. Should I be making the most of 10% cgt now rather than 20% (or more if tax rules change) later?
My current view is that I’d pay 10% tax all day and I should lock in gains and make the most of it. I’ve not found any analysis on this point, unfortunately.
@onion
I live in hope that the CGT allowance will be removed and indexation is reintroduced- but I’m not holding my breath.
The 10% CGT rate only applies for basic rate tax payers, if your gains take you into HRT territory then you’ll pay 20% on the excess amount (18/28% for property gains)
If i had unsheltered gains and headroom in the basic rate tax band I’d be using it PDQ – (and rebuy in my ISA)
Personal view only…
@boltt – yes, your assumptions there are right. I am a basic rate tax payer – no income/pension + some dividends and interest income.
Thanks for your take. Nice to know that what I’m up to isn’t completely bonkers!
@Dangerousdave
It is the same underlying asset, so you will be caught by the 30 day rule. That they have different ISINs is irrelevant.
Why don’t you just buy a different fund/ETF, or possible two if you still want an 80/20 split, e.g. FTSE All World tracker ‘VWRL’ with 80% and a bond fund with 20%?
If you are desperately unhappy with this, or it must be LifeStrategy 80, then 31 days later sell them and buy the LifeStrategy 80 Inc. This is the only way you will be safe.
@dangerousdave – you could also consider selling LS80 Acc and then buying 50% LS100 Acc and 50% LS60 Acc with the proceeds. Not guaranteed to be a perfect replica of LS80 Acc but should be very (very) close.
Love how this question on ACC Vs inc, CGT on funds just rumbles on and on with no sign of resolution across multiple articles. The internet has no consensus and HMRC are AWOL. It is, for now, seemingly unanswerable…
Next tax year, I’m using all available options to keep taxable income below 75k. Yes, I live in Scotland, where higher earners are getting hammered from next tax year. My aim is now to work a lot less and start transferring non tax sheltered assets into our ISAs and SIPPs over the next 5 – 10 years.
@Onion, I agree with you and Boltt – use it (your 10% band) or lose it.
@Rhino, the internet may have a termination for you – see https://forums.moneysavingexpert.com/discussion/5860818/accumulation-and-income-funds-cgt – for some highly informed comment from Bowlhead.
Also check out the two links in ColdIron’s post there. These lead to some fascinating interaction between the erudite B/H and his doubters. (Monevator gets a mention).
Is there an allowance for up to £5000 of tax free interest on savings if your total income is below £17500?
I seem to remember Martin Lewis writing about this
xxd09
@Dales – just seen this thanks . Concurs with the general principle of ‘expect the worst’ i.e. you sell acc and buy inc you will be on the hook for CGT. Realistically there is no way I’m going to convince anyone to do ‘an exchange’ for me.
If your income is zero, you can still get ‘tax relief’ on a pension contribution of up to £2880 (the tax relief adding an extra £720).
What if your income is above zero, but less than the income tax personal allowance? Can you get ‘tax relief’ on 100% of this? For example, if your annual income is £10,000, can you put all of it in a pension and get £2500 of ‘tax relief’?
For those may not know why the UK tax year ends on 5 April, and who are curious, the link below is helpful.
https://www.ebs.ltd.uk/news/why-does-the-uk-tax-year-end-on-5th-april/#:~:text=In%20order%20to%20ensure%20no,year%20beginning%20on%205th%20April.
@Owl – 1:25pm
“if your annual income is £10,000, can you put all of it in a pension and get £2500 of ‘tax relief’?”
Not quite. You can put £8,000 in and get £2,000 tax relief, making a gross contribution of £10,000 – which is the amount of your gross (relevant) earnings.
But, yes, you get relief on income that – while taxable – was taxed at 0%.
@xxdo9
Yes is on Martin Lewis MSE website but he says 18570.
“If you earn less than £18,570 a year from earned income and savings combined, then all your interest from those savings could be tax-free.
I think this is if you are basic rate tax payer and so get the PSA £1000 interest tax free as well – less if higher rate taxpayer. Anyway you can read this on MSE link here:
https://www.moneysavingexpert.com/savings/tax-free-savings/
One more threshold that’s worth being aware of, for anyone it affects: The child benefit threshold is £60,000. Above that, you need to pay a charge – effectively giving some of it back. Above £80,000 you need to give it all back.
Those thresholds are based on taxable income of either partner individually. So paying extra into a pension can reduce your taxable income and allow you to keep more (or all) of the child benefit.
https://www.gov.uk/child-benefit-tax-charge
Thank you updating these articles @TI and @TA.
The tax optimised income in retirement up to age 75 for a UK resident would be:
a). going part retired with earnt income of £12,570 p.a. (ideally as 0.1 FTE of £125,700, so 1 day in 10 worked 😉 ). This:
(i). qualifies the year in question for SP and
(ii). allows you to make a net SIPP contribution of £10,056 and get 20% relief at source (of £2,514) as all the £12,570 is relevant earnings here (providing it is in principle chargeable to tax under section 7(2) ITEPA 2003, even though not earning enough to pay income tax, i.e. that the earnings are below the £12,570 personal allowance for income tax does not prevent the pension scheme claiming the 20% tax relief for you).
b). To have £6,000 p.a. interest income from outside an ISA and £500 dividends from a GIA. This uses up the £5,000 additional allowance for unearned income for persons with £12,570 or less earnt income and/or pension income (plus uses up the £1,000 personal savings allowance for a non or basic rate taxpayer).
c). You then defer taking the SIPP pension and your SP to age 75 and live frugally on £19,070 p.a. on zero tax. At 75 the SP will be enhanced by 5.8% p.a. for each year it is deferred beyond SP age upto 75 and the annuity or sensible drawdown rate for a 75 year old will be much higher than say a 55, 60 or even 65 year old.
Of course the danger is you die before you get to 75 or the rules get changed. 🙁
Isn’t it a total ball ache now with taxable (GIA) accounts with only 3k CGT allowance.
You can’t sell that much now if you’re decumulating/in retirement and need to fund a living before you usually go above the allowance and end up with hefty tax bill. You don’t really want to be selling out your ISA’s/non-taxable to live from when you have taxable money you would be better spending. Similarly if you want to fill your ISA/pension each year as I do, it’s impossible, even though retired so I can only put £2880 into pension (+TR £720 = £3600 total) usually will mean CGT bill.
It’s difficult to not allow the tax tail to wag the investment dog, so to speak. It definitely has prevented me from having my trading accounts as I really want them, in not being able to change assets/brokers etc. as would involve selling out incurring CGT in the process. Also sometimes if brokers change their fee structure, maybe unfavourably, in taxable accounts – you can’t do sod all about it unless you want to incur tax bill.
I’ve seen some on other online sites saying just do Bed & ISA transfer and won’t have to pay any CGT but obviously these are liable to CGT and only afterwards once ISA’d or SIPP’d that they are not – as the Bed & ISA process is not a transfer over of the assets, it’s a sale and buy back in the ISA as those are HMRC rules so is a sale for CGT purposes (otherwise everyone could get around CGT by doing it).
I have done sell and buy back though from ACC to INC in same funds (unit trusts) lately and have eventually……….. after speaking to few people at HMRC (CGT Dept), been told that this is allowed and not classed as sale for CGT purposes provided it is in exactly same fund and is just a change of units – and importantly is not bought back for higher amount of money than sold for (they never said anything about less – but maybe would have thought it would have to be for the same amount sold out for (consideration) ?) They also said the sell and buy back should be done straight away without delay but this does not have to mean it all has to be done as one “switch” via broker – you can do this yourself as long as there is no delay – so as soon as money hits your account, you should buy.
Admittedly, with HMRC like everything, this took some time and few calls/long holds and speak to quite a few people to get to the bottom of it. If you just get the initial customer services line they don’t know anything much and said initially that you couldn’t do this (i.e. would be taxable) but eventually I got a higher technical officer a couple of times and even they were not sure and had to go and look it up. Amazing really that they don’t know their own rules. One even told me to speak to an accountant – to decipher their own rules – unbelievable/incredible!!
As far as I’m aware the annual allowance rules for pensions contributions apply to both employer and employee contributions (taken together), whereas a separate limit applies for personal tax relievable contributions, being 100% of an individual’s net relevant UK earnings in the tax year (though an individual can still contribute £3600 gross per year even if they dont have any such earnings). The two limits often cause confusion. Happy to be corrected by the experts if my understanding is wrong – nothing about pensions is ever simple!
@DH
Perhaps we should optimise for fun and minimum regrets between 55 and 75 rather than purely tax.
I’m planning on go-go years ending 70-75. We’ve sacrificed enough when you to achieve FI, we should spend spend (check the numbers) spend a little more.
But to be fair, I’m wiring this to convince myself really
@xxd09
Another key factor for the starting rate for savings is that eligibility is based upon your other _income_ in the tax year. I was still eligible for the full £5000 allowance even in the year I crystallised a large capital gain as that gain was not income. This works out rather well for a pre-pension age person in drawdown as income outside of interest should be zero.
One way it could work out is if you downsize your house, and then can’t fit the difference raised into that year’s (and the immediately following year’s) ISA allowance and/or pension input amount annual allowance.
You would then use the difference raised for buying income generating investments which, if fully retired, and without any earned income, would give up to £18,570 p.a. as non taxable for interest income and a further £500 p.a. for dividends.
Taking 4% as a realistic sustainable yield for both, that would then be £476,750 of capital required, which might, in turn, be the net difference (after estate agent fees on sale and stamp duty on purchase) of going from a £1mn down to a £500k house.
I was /am in the happy position of living off my ISAs only-paying no tax and having therefore no income save for my state pension which is now approaching the personal allowance limit
Using Instant Access Cash ISAs (tax free) and a High Interest Bank Account for cash buffer-2 years living expenses
Therefore eligible for the maximum tax relief on savings interest
Just pondering the possible situation if and when Reeves removes Instant Access Cash ISAs and will have to resort to High Interest Bank Bank Accounts only
xxd09
Why can’t you use money market funds/ETFs in an ISA if Cash ISA abolished ?
@Algernond — I imagine they’d be disallowed as holdings. You used to not be allowed to hold bond funds with duration less than five years in a stocks and shares ISA if I recall correctly?
@Algernond
Yes you can, at least iweb allow it. No idea if this is as per HMRC rules! ( example- LG cash trust, which is very short term bonds & deposits, duration 50 days on fact sheet)
@Boltt – I’d advocate optimising for fun and minimal regrets outside your 55-75 window as well, maybe your whole life if you can stretch to it?
Easier said than done at times though..
@Confuzed – tbh, your comment is reminiscent of quite a few others I’ve read. Few quick questions on it, did you receive anything actually written down from HMRC or was it all just verbal over the phone? What *exactly* do you mean when you say ‘just a change of units’? An acc unit of a given fund is not the same price as in inc unit. How, if you need to sell the acc units to purchase the inc units, can you guarantee you don’t buy at a higher price? What does a higher price mean when the units have different prices anyway? What *precisely* does ‘straight away without delay’ mean in this context? a minute, an hour, a day, a couple of days?
I reckon, on balance of probability, an individual selling acc units then buying inc units in the same fund *is not* exempt from CGT. I absolutely believe that you’ve done that and paid no CGT, and that someone from HMRC told you it was fine, but that still doesn’t mean its right. As you say, HMRC don’t generally seem to have a clue about their own rules.
Reminds me of a mate of mine, who has worked for investment banks all his life, being utterly convinced that acc units meant you weren’t liable for dividend tax. He’d never paid that tax his whole life and HMRC never picked up on it.
It is kind of annoying that questions like this can’t get proper bona fide answers with absolutely concrete audit trails of evidence. Failing of HMRC really.
@Algernond @TI – I certainly hold/have held MMFs (CSH2) in my ISA as well as short term gilt funds (IGL5, GLT5) and individual gilts less than 2 yr duration. Not aware of any problem with that and both Iweb and AJBell say they are suitable for holding in S&S ISA
Regarding the starting rate for savings, could you regain eligibility by paying your earned income into a SIPP? Eg earn 30k from employment but pay 30k gross into a SIPP.
If you earn 10k on cash interest would just get the 1k allowance?
I have recently learned that it’s probably worth putting money in a SIPP to deal with the effective tax rate between 100k and 125k, even if it means breaching the annual allowance limit. A combination of getting back the lost 12.5k of personal allowance, the lower tax on the way out (25% tax free and likely lower tax bracket), and having investments growing in a tax shelter make it worth consideration.
For those with an entirely unpredictable DB pension that may or may not lead to an annual allowance charge in any given year, you’d have to have enough up front to pay some/all of the tax charge though.
@Marco
Yes, paying into a pension to reduce income works to regain eligibility for the starting rate for savings by reducing the relevant income. I’ve done this before.
@Onion, 6:55am
“Yes, paying into a pension to reduce income works to regain eligibility for the starting rate for savings by reducing the relevant income.”
That’s… inconsistent with my (apparent) experience last tax year.
Due to an inheritance, I was able to RaS sufficient to contribute, gross, the (remaining) exact amount of my gross wage for that tax year effectively leaving me with £0 gross after all contributions combined.
All that did, on my self-assessment, filed online on HMRC’s portal, was extend my tax-free-allowance by the RaS amount, still leaving me with income tax to pay on my £1K+ savings interest (still under £2K, but still…)
Continuing speculation about cash ISA changes
@TI at #38
>>I imagine they[Money Market funds]’d be disallowed as holdings. You used to not >>be allowed to hold bond funds with duration less than five years in a stocks and >>shares ISA if I recall correctly?
This would be a shame. Would it be possible again?
Some brokers give a good interest rate on cash within S&S ISA.
e.g. this from T212:
Trading 212 Cash ISA: 4.5% variable
Trading 212 Stocks ISA: 4.6% variable
Trading 212 Invest: 4.6% variable
Onion #44 and PJH #45
Very interested in this as likely to cease employment part way through the tax year with capacity to make further employee pension AVCs or to a SIPP. My thinking was to take the Personal allowance as gross pay and put the rest of my gross into pensions so I could access the starting rate for savings on interest £1000-£6000.
If it doesn’t actually work would be a bit of a bummer. Further cashflow needs (and ISA fill) to be met from GIA which I think then is brought in as CGT in the top slice. Possibly further defusing to be done at 18% before fiscal drag brings both pension drawings and GIA into HR tax.
The real dilemma is how much TFLS to crystallize given most would end up parked in GIA beyond current year needs (topping up cash budget for the year). 18% tax on growth vs 20% IT on draw of the same growth isn’t much of a difference now IHT protection will disappear in SIPPs. The bird in hand aspect of having drawn it before any reduction in LTA and the possibility that capital losses in a downturn might be useful might tip it though I think that’s more psychological benefit than absolute financial.
I assume there are members who’ve had no qualms about parking full TFLS in a GIA post the developments in IHT?
@BBBobbins #47
” My thinking was to take the Personal allowance as gross pay and put the rest of my gross into pensions”
I opted to put the 80% of that in as well for the £2.5k relief (vastly outweighing the tax I did end up paying. )
“… post the developments in IHT?”
Those are by no means, yet, certain. I’m holding off on that for the moment.
Just found this on the Starting Rate for Savings. Suggests PJH may have been hard done by but if it is HMRC’s SA portal quite hard to correct.
https://community.hmrc.gov.uk/customerforums/pt/f4f8c397-259c-ef11-95f6-000d3a8737b3
@Alex #43
Interesting how that might work
Ignore NI
Someone is at £110k income having hit £60k annual allowance. No AA b/f capacity.
They pay £10k (gross) extra into SIPP. Incurring annual allowance charge at 40% of £4k.
But 10k doesn’t then get included in income for purposes of personal allowance reduction?
Say they then can take the net 6k out at 20% BR after retirement.
Total tax £5.2k rather than 10k x 60% (after PA reduction) = £6k
Am I understanding correctly? Obviously increasing TFLS would be a kicker for someone not already maxed out.
I withdraw 16670 from my pension as an UFPLS thereby paying no tax. Re the starter savings allowance of £5k do they base this on the 12570 ? I.e. excluding the tax free cash
@Rhino – yes I’ll answer your questions but very long and drawn out I’m afraid as I can’t give you much of an answer in just a couple of paragraphs.
As I said this is what HMRC told me …………eventually after quite a few phone calls over more than a year as I read much conflicting information and needed to re-check it again – and wanted to, to kind of check what the last one had told me and logged on the computer system.
But I will say this first. HMRC do piss me off so much. IMO, HMRC are a fecking liability to every taxpayer in the country. It is always a crapshoot with them! Their staff who man their tel lines generally are poorly trained and seem to know next to naff all. They often give incorrect or misleading information – unless it is the easiest of questions (e.g. “how do I pay my tax bill” – they’ll obviously know that one – how to grab your money fast.) And their community forums are a complete waste of space as the admin staff on them are worse than hopeless, giving a lot of incorrect information – I wouldn’t let my dog use them quite frankly.
In fact the exact thing you mentioned, I have seen them giving incorrect answers to on those community forums – somebody asked if they had to pay dividend tax on accumulation funds and unbelievably, they told them “no” and then when someone else came back and questioned it, HMRC still came back with the wrong answer – there are many such wrong answers I’ve seen on there – see this one here:
https://community.hmrc.gov.uk/customerforums/pt/1f445646-46bc-ef11-95f5-6045bd0ad9d8
…………and that poor sod asking the question will no doubt rely on that – and then will still get blamed/done by HMRC if they find out they’ve under declared/unpaid dividend tax as a result – as they will say they’ve not done their due diligence but how the bleeding hell can you when HMRC don’t even know themselves. They enforce these laws and should have the answers when asked – especially for what should be a pretty straight forward question for anybody with an ounce of knowledge!
As you said, and also IMO, this not providing the correct information/lack of transparency does comes down to HMRC failings – makes you wonder whether they intend it to be like this and don’t want it to be widely known for whatever reason (conspiracy theories eh!) For instance a taxpayer believing they’re liable for this may pay CGT (if they switch from ACC to INC) and then this might not be the case for such a switch but anyway they declare the gain and so then pay tax on it – HMRC won’t check it and say “no you don’t owe it us mate” – they’ll grab it with both hands and run.
To my mind it’s such a simple question to understand – in that whether changing the exact same fund but just switch from ACC to INC, or vice versa, makes you liable to CGT or not? (and I’m no investing genius/guru/hobbyist either and never worked in anything to do with the financial industry). There are far more complex questions in the world of UK tax and finance but they can’t seem to/don’t want to provide a definitive answer on this in black and white for us all to see – I’ve seen people asking around on the internet for years about this question. It’s always conflicted people who argue over it on forums – but no one can ever prove it one way or the other.
I’ve seen TA comment on one Monevator article on here (just can’t remember which exact article it is now) something to the effect that he believes it may not be liable to CGT for switching between units but that it is a grey area and the usual caveat put forward to “seek your own tax advice” – which is fine but still not that helpful to anyone (Understandable/not his fault but totally HMRC’s of course as you can read their CGT manual on Gov.UK website but it’s still not totally clear. About as clear as mud.) Nobody has any real idea on this as far as I can see.
I’ve also seen accountancy websites with one saying it would be liable to CGT and then another saying it wouldn’t. I’ve rung around brokers but even the good ones don’t really know – most of these just dodge the question as well and just tell you to seek advice of HMRC/an accountant – so if they don’t really know either, how the hell is “Joe Public” supposed to know and get it right on a tax return?
Like many I’ve also seen dozens of conflicting comments on this on many websites including Monevator and on may forums including MSE (with “Bowlhead99” discussing why he is right/seemingly the only authority on this subject), Lemon Fool etc. etc. The point is none of these declare they work for HMRC, never mind in the higher echelons of the CGT Dept. or that they are tax inspectors and so in actuality, they don’t know the regulations anymore than anybody else (if anybody on here does work there please speak up now and tell us why you’re right when many of your colleagues in CGT Dept. don’t even apparently know). Just as you or me don’t know, it’s all guesswork/opinion – and is just one persons interpretation of what they have read and think it to be or based on some internet forum comments they happen to agree with or what suits them best.
In my view HMRC should get a fecking grip on themselves and actually put it in plain english in the CGT manual instead of the convoluted terms and language and links to other CGT manual documents on share reorganisations causing confusion/grey areas so that nobody definitively knows the answer!
Also when a HMRC investigation/enquiry comes knocking at your door (I know I’ve had one in the past) saying they are investigating your tax affairs – believe me they will have all the answers then and they state you should be aware of it all as well. They won’t listen to “I didn’t understand the rules,” “the information isn’t clear,” “my accountant said it was correct” or anything else. They will say they do know the rules (even though they couldn’t tell you them earlier when you tried to find out). I can say though that they won’t listen to anything based on opinion or that on the “balance of probabilities I decided this……..” I don’t think in tax law it would be acceptable – they will say it’s black and white – you’re either liable for tax or you’re not – or “ignorantia juris non excusat” (ignorance of the law is no excuse).
Regarding what you asked about getting it in writing from HMRC. I have asked, although never believed they would ever do it – it’s not in their nature to be accommodating/helpful is it? It’s very rare they will send this sort of stuff out to you in writing (or even email for that matter – if you ask why, they say it’s down to time/cost and it wouldn’t be possible to do it for everybody who just wants any particular question answered so it was just verbal but I did ask, and will explain in a minute, how I think I can rely on the answer I was given.
When you asked what was meant by change of units in the same fund, I meant as I put – just changing/swapping them – some call it switching (although that can cause some confusion) from accumulation to income (or vice versa).
Also you asked about this. I did not mean individual unit price – HMRC meant the total price. For example, just for simplicity, if I had say £20,000 ACC units in Fidelity Index World P fund and sell this out (forget about dealing charges – as it’s what you realise after any are deducted from what you end up with), they said the amount I received from the sale, I would need to reinvest not more than this (his words were that I “could not re-purchase for a higher amount” as I wrote it down in my notes) in the INC units of exactly the same fund. I told him I would be reinvesting the exact amount I received from the sale of my ACC units back into the INC units. He did not say though that it could not be for a lesser amount (and I admit I never asked as I wasn’t doing that anyway) but later I did wonder whether he meant to say it should be for exactly the same amount realised from the sale – but he didn’t say that.
Your next question – let me explain the context. I put it to the HMRC higher technical officer that many “amateur armchair investors” were saying that such a transaction WOULD BE liable to CGT if an investor carried out these transactions themselves by selling out ACC say, and then buying back INC (when money came back to broker account) and just because money had changed hands therefore it must be a “disposal” for CGT purposes and so liable for CGT.
Many said for it not to be liable the conversion/switch, as it is termed, MUST be done via the fund manager/broker or such, so that money doesn’t ever change hands and is just done in one transfer by them (presumably similar to when you transfer your ISA to another broker, in-specie, without selling them out to cash first). However I don’t believe that many brokers facilitate this method. I then referred him to this page in their CGT manual here:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg57709
which states this:
“CG57709 – Unit trusts: accumulation units.
Many unit trusts offer accumulation units and income units. These should be treated as different classes of unit. Any switch from one class to another within the same unit trust should be treated as a share reorganisation, see CG51700+ ”
I asked what does this mean exactly and does this mean an individual investor can do it themselves by sell out/buy back or does this mean it can only be done as a “share reorgansiation” or by a fund manager switch as described above (without money changing hands).
The HMRC HTO said that I could do it myself by selling out to cash first and buying back and would not be liable to CGT providing it was done without delay. He didn’t add a timescale, so I asked how long. I intended to do it the same day so I asked this saying – if cash from the sale arrives in broker account on a particular day and I then re-bought that same day, is that acceptable, to which he said yes – and repeated “as long as no delay it should be okay.” So you do have to keep a handle on when the money comes back as some brokers don’t inform you but taking it down to the minute or hour, I don’t think would be feasible for anybody and a bit silly, TBH. You can’t be logged in all day looking at your account/refreshing to see when cash arrives in it and I don’t think HMRC have the time or interest or the will to police to that level of absurdness. I mean, even if it is possible, how much would it cost them look into and check up on individual taxpayers to that sort of level, they don’t have the staff and stuff gets missed as it is. So frankly they are not going to be checking up on whether somebody has gone an hour or day over some timescale for buying back after doing a switch of units. HMRC would have to find out from the broker the exact time/date of every transaction and as you said they miss people (like your investment banker friend and I know of others as well) who are not even paying dividend tax on ACC funds for years who believe they don’t have to pay it and that is a lot more easily tracked if they have access to your broker consolidated tax statements, which I presume will be sent by brokers to HMRC. You might be okay a couple of days after, he didn’t seem that phased about it. I think if you took a week or two and then did it they could possibly then question why you took so long and think you was up to some wheeze but I still don’t think they’d be checking this for everybody. The thing is they can only investigate so many people and things that are flagged up by computer systems (more so with AI coming more to the fore in future) but inevitably a lot is down to trust with tax returns. They don’t have the staff and Joe Bloggs who might have mistakenly underdeclared £200 in tax is probably not a priority – probably would cost them more in time investigating so write it off. As I say I did the the transaction the same day as I got money in from the sale and I switched a quite a few of my funds from ACC to INC (not all on the same day, mind – that’s asking for trouble).
BTW, whilst I don’t believe you to be necessarily correct on this statment:
“I reckon, on balance of probability, an individual selling acc units then buying inc units in the same fund *is not* exempt from CGT ”
………. as words like “reckon” and “balance of probability” would not cut it with HMRC or any accountants I have dealt with. This implies you are just guessing whereas it has to be certain, I do think you are absoultely correct in what you said about this:
“HMRC told you it was fine, but that still doesn’t mean its *right *. As you say, HMRC don’t generally seem to have a clue about their own rules.”
Exactly right. As I said I’m no tax expert so I don’t know if that information is definitely correct in law and you’re right HMRC staff don’t have any clue about the rules/regulations/interpretations of tax law – at least the ones they put up to answer taxpayers questions don’t anyway. I know this from all my contacts with them over my lifetime (and I have run businesses in the past as a company director and self employed as well – so have had plenty of run-ins with them and misinformation – as well as from firms of “accountants.”)
But as you said I have absolutely done this, after asking these questions over a long period and trying to get some clarification though with HMRC first. So yes I have sold a few funds and switched them to INC
and paid no CGT – as they told me it would NOT be liable for CGT.
Now how can I rely on this and what should others do if unsure as I’m still not sure they told me the correct information. The only conclusion I came to was either:
(a) don’t do it as too scared of the consequences if it’s wrong and so get into a cardboard box and hide forever (……….but that isn’t me and I’d rather argue my case if I ever have to)
or
(b) not listen to comments/noise/arguments/people on forums – as none of them know the answer because if HMRC don’t – really how the hell do they? Are they some higher authority perhaps?? But simply all you can do is try to ascertain from someone higher up the food chain in HMRC CGT Dept. a possible answer to it – someone at the top/who is qualified.
This was quite difficult as I had to ring quite a number of times, on hold a long time. You then get to speak to an intial HMRC customer services phone answering “human bot” (like a chat bot but knows less) – barely knows their name. TBH, you have to even make the question more involved and difficult than it actually is, as the more complex it sounds they haven’t a clue what you’re on about, the more/quicker you are transferred higher up the food chain between people to someone possibly slightly more sensible/intelligent – who knows they are actually dealing with tax, that type of thing.
So you carry this on between “bots” and even when you get to the CGT Dept you firstly get somebody who knows nowt much either. It is really banging your head against a brick wall at times. Sometimes I had to argue with them. You know sort of tell them I didn’t think this was right from what I had seen/read/understood and needed further clarification and furthermore somebody else I had spoken to had told me the opposite – so which is it? I would then get put on hold again, some may even get stroppy.
Then someone else isn’t sure and thinks maybe it is or maybe it isn’t. I am feeling anger now. You argue the point again and say you need to know the correct/exact information as it will involve a lot of money and you don’t want them to cause you to make a massive mistake on your tax return. Also ask if calls are recorded just to give them some extra impetus to find out the correct answer (instead of fobbing you off). This sort of shifts the blame on to them and they often panic and then put you through to someone even higher up. Sometimes this involved speaking to 4 or more different people on one call (most of who gave me conflicting/contradictory answers) before I eventually got to a higher technical officer in the CGT Dept. which is what you need as a minimum. These are the ones that can actually decide and make a decision themselves and this is what this guy eventually did. The final one I spoke to last year, who gave me this answer at first told me I would be liable for CGT. When I said was he sure as I had looked at the HMRC CGT manual, which as I said before does say this:
“CG57709 – Unit trusts: accumulation units.
Many unit trusts offer accumulation units and income units. These should be treated as different classes of unit. Any switch from one class to another within the same unit trust should be treated as a share reorganisation, see CG51700+”
…….and what exactly did it mean? He went away for a bit to have a look at it/take advice from others in the Dept. and then finally came back and told me this: “I have made a decision and if you carry out this – it is not a disposal, you would not be liable for CGT.” This sort of inferred to me that although he maybe took advice, he had made this decision. Can’t fathom it really as it shouldn’t be his to make – it’s law and it either is liable to CGT or isn’t but anyways…..?
I then asked would I need to report this in any way – say if amount over the CGT reporting threshold (50K) and he said “no, there would be nothing to report – it is not liable to CGT.”
I also asked would this apply to exchange traded funds in the same way as unit trusts and he said “yes just the same as long as it is exactly the same fund” (but just switching from say to distributing instead of accumulating).
I said how can I be sure I can rely on this information you have given for my tax return and then went on to explain how many times I had rung/number people spoken to and being given contradictory advice – I mean he had even changed his mind himself in the middle of all this! I asked how can he be sure his “decision” will not get me prosecuted/fined/jailed or whatever.
Although they would not send this in writing, as I explained earlier, he gave me his full name and job title and I have noted down all the dates/times of all my calls (and names of all others I spoke to with all this info as well) which I will obviously keep so I have a trail. I also said I presume calls are recorded and kept for some period and that is what we have discussed today logged on the their system. He said, our discussion is all logged against my personal tax account so that if HMRC do investigate, they can see exactly what I have told you and discussed today. I said I don’t want to question your decision but what would happen in the event that a tax inspector decided the decision was flawed/incorrect. He said that it shouldn’t be, it was there on the system but the worse case is that they could say I should have been liable for CGT and make me pay it back at some point but I would not then be liable for any fines/penalties/prosecution etc. as it based on his decision.
So although I think they should really know and I should not have to pay it back based on their wrong advice, I feel it’s as good as anybody will get from them and I either do what I want to do or not. So fair enough I thought and did it – it likely won’t come back on me ever anyway but in event it was overturned I’d just have to cough up and pay the tax but without other penalties/no criminal record etc. So I will take that.
To be on the safe side, I also later rang back and spoke to CGT Dept again about another small issue, another kerfuffle to get through, but I did also really want to check what he said with somebody else just to be sure – not to question his decision but to tell me what was logged on the system on the date and that it was all there. A lady confirmed what he had said back to me – so I knew this was correct and logged so I am as satisfied as I can be with it. She also said all the other dates I had rung on were on there as well along with what was discussed with all staff etc. So obviously when they ask you for your tax ref/national insurance number when you start a call with them, that is so they can log what has been discussed against your tax account – so it is all there in case of any disagreement.
Although this is like climbing a frickin mountain, this is what I would advise everybody doing this to do first, then you have a logged and individualised decision against your tax account and it should stand up – all being well – unless the law changes of course and then you would need to be aware of that and then go through it all again! Not something I would really want though – would rather pull all my own teeth out with pliers without anaesthetic! A bit like people reading this would likely rather do, but just wanted to explain to you a tiny bit of what I had to go through to get this far, since you were curious. I don’t want anybody thinking I took the decision lightly or even that I believe it is right – but just that I personally have it on record.
Sorry about all the ranty bits but HMRC annoy me. Anyway hope it helps. All the best.
@BBBobbins #47 & @PJH #45
I’ve gone back to my “SA302 calculation” for my 22/23 tax return and it aligns with what I previously said.
My SA302 for 22/23 said “Total income received ”
Then “Your basic rate limit has been increased by to for pension payments. This reduces the amount of income charged to higher rates of tax.”
Then:
“Savings interest from banks or building societies, securities etc.
Starting rate £5,000.00 x 0% £0.00
Basic rate band at nil rate £1,000.00 x 0% £0.00
Basic rate x 20% ”
As far as I can see, that tallies with what I described above with additional pension contributions reducing what is counted as income to make me eligible for the staring rate for savings whereas without the pension contributions, I would not be.
@BBBobbins #50
The calculation assumed that the SIPP income would be taxed at 40% and is as follows:
It costs you £8000 to have a gross amount of £10,000 in a SIPP with the automatic basic rate tax relief.
You claim higher-rate relief in tax return (at 60%-20%=40%) = £4000 tax refund.
But, because you exceeded the annual allowance the whole £10,000 is taxed at 40% = £4000.
You still have £10,000 in the fund at a net cost of £8000.
After retirement you take 25% as a tax-free lump sum = £2500.
You pay 40% tax on the remaining £7500 and therefore receive £4500.
Overall, you have paid £8000 net contribution and paid £4000 annual allowance tax = £12,000.
You have received £4000 tax relief + £2500 tax-free pension lump sum + £4500 pension after tax = £11,000.
So it would appear that you have lost £1000 in the process.
But if you hadn’t done this, you would have paid 60% tax on the £10,000 earnings = £6000 tax (and received only £4000 in post tax pay).
Not to mention the benefit of growing that money in a tax shelter. Even if your entire lump sum allowance is used up by your other pension scheme (if you have one), the numbers still look good.
Happy to hear if there is some glaring errors in this. I haven’t done it yet (planning to in 24/25) so I haven’t seen what it looks like in an actual tax return.
@Alex #54
That looks odd. I wouldn’t be sure that that’s the way the tax refund works initially because 60% isn’t a real tax rate – it’s a shorthand for 40% tax plus more income being dragged into 40% from 0% as personal allowance eroded. But I’m happy to be corrected.
I don’t see how it could be so different from salary sacrificing in £10000. Using scheme pays on the AA charge, that would leave £6000. Assuming 25% TF, £1500 and the balance taxed at 40% = £2700 net. £4200 in hand vs the £4000 you’d have otherwise. Without TF element you’d end up with £3600 so net worse off.
So not worth doing if you expect to pass LTA anyway and draw (or suffer IHT) at 40%.
Think the maths get worse on that if you don’t get scheme pays on the AA charge. There you pay £4000 net to get £6000 out (again assuming no TF) or £7000 with TF vs not messing with the pension and getting £4000 net. Even if you could draw at BR tax you still pay £4k upfront to get £8k or £8.5k (with TF) back.
Obviously there’s possibly still some juice with NI possible on salary sacrifice and growth within pension enabling you to max out TF limit.
I’d be interested if people more familiar with the SIPP route could confirm if @Alex’s hypothesis is correct and it’s a quirk in the system which gives a better result over payment from gross pay in this instance.
@BBBobbins #55
To view the post-tax SIPP contribution calculation above a different way:
Ignoring the annual allowance charge for now, you actually pay £4000 of your post-tax salary to get £10,000 into the SIPP because you get the tax back and the personal allowance reinstated. Then you pay the £4000 annual allowance charge so the whole lot costs you £8000. The automatic 20% basic tax relief is effectively exchanged with the 20% gain from getting personal allowance back.
If you had tax relief at source, £10,000 would go into your pension, the theoretical tax relief would still have been £6000 if you include the effect of getting the personal allowance back. For breaching the annual allowance you’d pay £4000. But you still have the £10,000 in your pension. If your pension hadn’t been taken at source you would have received £4000 in post tax pay. So to get £10,000 into a pension you’ve paid £4000 in AA tax charge and £4000 in pay you never received = £8000. The 20% extra in your pension is effectively due to the personal allowance you never had to lose. If you use scheme pays instead of paying tax up front then you’re just deferring the payment of £4000 of that £8000.
Again, happy to be corrected because this stuff hurts my brain, but I want to use it because my NHS pension makes any real planning impossible, so I need to work out that it’s worth doing this whether I get an AA charge or not. If I can’t offset the loss of personal allowance this way then part time increasingly looks like a better option. And the Daily Fail haters accuse NHS staff of being lazy for choosing to work part time?
@confuzed, what an awful time you have had trying to get an answer. A family member who was filling in a tax return recently asked me whether in the box for employment income they had to put in a figure for income after, or income before, NI, as they had called HMRC helpline about this and they couldnt give an answer ….
@BBBobbins
Apologies, I’ve not addressed your comment about salary sacrifice and NI. In part because it doesn’t apply to me so I don’t understand it.
I’ve just assumed pre-tax pension contribution at source.
I found some talk of the NI part in all this here though:
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/60-tax-relief-on-pension-contributions/
@JP – Yes exactly, that’s why I am so irked with them as I’ve had years of it – it’s a runaround all the time with them.
And that question your family member asked was such a simple one – anyone there should know that even on the initial customer service line. If it was me doing that job, and I didn’t know the answer, I would put them on hold and go and find out the answer, or get back to them with an answer via email/text/phone whatever. How can they say they don’t know the answer when they administer and enforce the damn regulations.
They expect us to get it right first time, or heavy consequences/penalties soon come your way, but they too often fail you and can’t deal with your seemingly easy tax questions/issues. As I said, gods honest truth/swear on family’s life, that one of the staff in the CGT Dept. I spoke with about this (not the HTO who made the final decision – one like a grade down I think who I spoke to on a previous occasion) had told me I would need to seek the advice of an accountant about this question! Really unbelievable! They are the ones who administer the law on this – why should they pass the buck to an accountant – they shouldn’t know more than them about it? Most don’t, in fact when I’ve seen this question asked on online accountancy websites over the years, they often give opposing views – so they can’t all be right.
HMRC really need to get their finger out and get their act together. The waits are also often far too long on phone lines – even more so near end of the tax year and in January when leading up the online tax return submission deadline.
I don’t think this shoddy level of service is just since the pandemic or brexit either – they’ve been poor for years – and it’s not just HMRC, it’s the whole country that is failing.
And whilst I am on about it, but not wanting to sound like a completely ranty old git – although getting nearer to it these days, haven’t most things in this country gone this way. It makes me wonder why we ordinary folk stand for so much in this country and do nothing about it. I mean we are paying a massively high burden of taxes overall, yet what do we ever see for it. Just a few off top of the head are: hardly anybody can get an NHS dentist, GP services rubbish and can’t get appointments/tests/referrals as we used to, NHS broken/crumbling as we all know (as Govt. admits), schools falling apart, prisons full and buildings crumbling so that we soon won’t be able to put criminals away for the time they deserve, justice system can’t cope, police under funded/under resourced unable to cope with crime levels, roads falling apart, military now so underfunded/overstretched we are at risk – Starmer still seems to think we can take on Russia ourselves in the way he talks (cannot afford to fund military as Trump wants us to – although can see his point about europe taking the pee with US) , train services poor/overpriced unlike most of europe, waterways polluted/contaminated by water companies and charging us to clean it all up!, this country cannot undertake building/infrastructure projects at any sensible cost or without massive delays (how come other countries can though?), benefits/state pension system costs spiralling out of control, councils underfunded – cutbacks and no longer able to meet decent level of service in many cases, the amount of decent places to visit in this country has dwindled over the years – okay countryside is still there but seaside resorts I used to go to as a kid, most are now in such a state of disrepair/dilapidation beyond belief – no wonder not many go to these places anymore and all clear off abroad, as even apart from the weather, they are so much better developed than ours.
I could go on but I will end up writing another essay. Where do all our taxes go exactly – I know the benefits system is a big one but our taxes just go up whilst the country seems to be going down a massive sinkhole. Somebody somewhere needs to get a massive grip. I don’t want to get political cos I’m not (and don’t really like any of the political parties – they’re all mainly as bad as each other) but most politicians don’t seem to know why Farage et al are on the rise in this country, when it’s obvious, but can’t see his like making things better.
Something that almost caught me out… For anyone using pension contributions to reduce their income below £100k to avoid the reduction in personal allowance, don’t forget to consider non-employment income such as savings interest and dividends too. I think this applies even if those other sources of income are within their respective allowances.
For example, if you earn £110k and have earned £500 savings interest and £500 dividends, then I believe you’d need to contribute £11k to your pension to avoid any reduction in personal allowance, effectively bringing your employment income down to £99k.
In other words, you can’t just bring your employment income down to £100k and enjoy the other income on top – you need to bring your total income down to £100k. (Writing it like that, perhaps it’s obvious, but it wasn’t to me!)
@Confuzed – that was absolutely epic! Many thanks. Whilst a lot of words to take in, I think I have the summary of it. If I want to do the acc to inc shimmy and not pay any CGT I am going to have to suffer like a good’un on the blower to HMRC.
To clarify, my ‘on balance of probability’ statement, that absolutely will cut it with HMRC as its the option that puts a CGT payment in their piggy-bank. But clearly I would rather not take that option!
I think my CGT liability would be in the order of a few tens of k so it prob would be worth me devoting a day or two on the phone for it, possibly a day or two not enough though? Could they keep me on hold for a week?
Just to add to my comment above, the relevant dividend income includes notional distributions from accumulation funds – i.e. money you haven’t even received directly. This is what nearly caught me out, and I’m pretty sure I won’t be the only one (assuming that anyone else actually declares this!)
@Invariant (60)
Absolutely. I’m nowhere near flirting with the £100k threshold but I am trying to stay below the HRT threshold, which has been made more difficult with the increase in cash interest rates in recent years. It has meant investing in low-coupon gilts in place of some savings account deposits. Don’t forget that Gift Aid also has the effect of lifting tax thresholds by the grossed-up value of the donation in a similar manner to pension contributions.
Building on what #63 DavidV said on Gift Aid.
Gift Aid has a unique place in that it allows you to reduce taxable income from the last tax year.
Ie. It’s now Sep 24 and you’re coming to complete your 23/24 self assessment, a Gift Aid payment now can lower your 23/24 taxable income.
So if you go over a bit of what you want, critical say for Childcare benefits not being a penny over £99,999.99, then it offers a certain flexibility.
@DavidV – I had it in my head that this was a unique oddity of the £100k threshold, which is why I framed it that way. I think perhaps the specific example I gave (where the extra income was below the savings income and dividend threshold) IS unique – I don’t think that would be an issue for the HRT threshold. But that’s quite niche, so you’re right to point out that the general point applies to any threshold.
@Genghis – Really?! How do you choose which tax year to apply it to?
@Invariant (65)
All income is added together without account of savings and dividend allowances to determine in which tax-band it lies. The respective tax-free allowances are then applied to the calculation of tax on interest and dividends. Dividends form the top slice of income, so the amount that falls within a higher tax band is influenced by the whole amount of interest in the slice below, and not the interest less the personal savings allowance. Note also that the value of the personal savings allowance itself will change depending on which tax threshold total income (disregarding allowances) has crossed.
A further point to watch is that CGT is calculated at the rate corresponding to your highest marginal tax band. Again, the PSA and dividend tax allowances reduce or eliminate the income tax on interest and dividends but do not reduce the rate that CGT is paid.
@Invariant #65. Yes
https://www.gov.uk/donating-to-charity/gift-aid
Just put it on your self assessment or if you don’t fill in one contact HMRC and they should be able to amend your tax code.
@Rhino – Yes exactly, I had to be a bit of a thorn in HMRC’s side to eventually get there and if I rung up again now, albeit with a different name/tax account/identity, I wouldn’t be at all confident that I would get the same answer. Which is ridiculous shambles really as they should know the answer and should be the same answer for everybody.
But I knew from dealings in the past, that you need to be speaking to the correct dept. for the tax you are asking about (not always easy to be put through – they often sort of want to fob you off and get rid of you). They just seem to want most to deal with customer services staff only (as they have more of them and cheaper to employ) but they invariably either give you inaccurate information/the wrong answer as they don’t have any real knowledge, so if you rely on them it could end up costing you large.
I knew I had to try to get to one of the top honchos in the dept – and from my dealings with them, I think the HTO’s (higher technical officers) are about as high as a “Joe Public” asking questions about their own tax affairs has access to. But they can actually make a final decisive decision on it. (The odd time in the past, I have spoken to a “tax inspector” but this was when I had a company and was not about CGT, I can’t remember exactly what it was about now as was some time ago – may have been to do with corporation tax matter/company dividends or something similar.) It shouldn’t be like that of course as there is no decision to make – like he told me there is no liability for CGT so that should be it for everyone as far as I can see?
Just seems wrong that somebody else could ask exactly the same question as me and then be told they would be liable for CGT for an ACC to INC switch, because I got told I would pay CGT by nearly all of the other staff I spoke to (although some didn’t know/couldn’t make up their mind and passed me on in the end). In fact it was only this HTO who made the final decision who said I would not be liable for CGT.
I didn’t mention before but he did ask me why I was looking to do the switches from ACC to INC. I didn’t think it was really relevant as I didn’t see why the actual reason for doing it mattered – after all whoever does it, it should be straight forward and either taxable or not. But anyway I thought I’ve nothing to hide, I’m not doing owt wrong so I told him why in that basically I’d got to a point/age where I wanted some income from my investments, instead of all being in ACC and then needing to keep selling them out for income. Also for now I figured I would just do this in my taxable accounts as when you do start to have to sell stuff out more regularly for your living expenses and so constantly have to do CGT tax return calculations, although not difficult, it is a bit more work and a lot more tedious, as we all know, with ACC and having to go through years of broker tax statements finding all your divi’s over the years – whereas with INC you only have to account for an equalisation payment if there is one (only received in the first period of holding after purchasing). He seemed quite happy with my reasoning but as I said I don’t see how it could possibly affect his decision anyhow?
It obviously would pay you well then to spend time to also get the *right* answer from them if you ever needed to do the ACC/INC switch or vice versa and yes I completely agree you were in fact correct on the “balance of probability” statement as it would definitely cut it with HMRC (……………..providing it was in their favour as you say!)
All the best.
Cheers.
If it hasn’t been posted already, this recent HMRC response suggests it’s fine to move from accumulation to income units of the same fund
https://community.hmrc.gov.uk/customerforums/cgt/55b7be78-a2e6-ee11-a81c-6045bd0b57b6
@Confuzed & Rhino
Back in the day, before fund platforms (and even the internet) were a thing, I used to buy unit trusts (i.e. ‘funds’), before they were renamed to OEIC’s, directly from the fund management group. It involved posting letters and sending cheques. There really was no alternative.
So I have actually done a conversion of Acc to Inc directly with a fund manger, not through a fund platform. It was not a sale and purchase, but a switch. I received one contract not that actually said ‘switch’ on it (not two for a sale and purchase). I received a new number of unit trust units reflecting the different price of the relevant units, but the value was exactly the same.
The reason for this is because none of the underlying assets in the fund were sold and re-bought, it was just an administrative entry for the fund management company in how the assets were treated, i.e. rolling up the dividends vs paying them out.
I was told by the fund management group that this was not a sale and there would be no CGT due, which is obvious when there was clearly no sale as such, just a switch.
Now, fund platforms could in theory allow us punters to do switches, but they don’t. The fund management group would have to adjust the number of Acc and Inc units they hold and so would the fund platform in response to the switch, but the platforms just don’t offer this facility. They just do sales and purchases. Cynically I think it is to charge us two lots of transaction fees, but I also suspect it would confuse some people to and in administratively a pain for them.
You will need to push through a Sale off you Acc with the fund platform and then do a purchase separately. As long as you do it within 30 days and the amount is exactly the same, you will be fine. (I have also done this too; just for a precaution in case it was queried, I covered the cost of the transaction fees separately, to the invested amount realised (gross of fees) and the amount re-invested (net of fees) were identical. This might have been unnecessary, but it felt safer. (i.e. sold £15,000.00 Acc, which I received minus £9.95 transaction fee, I re-invested £15,009.95, so exactly £15,000 was re-invested net of the fee.)
FWIW, the service from the fund management companies went down hill a lot after fund platforms arrived. They were just simply not used to dealing with retail consumers, only large platforms and it was that that prompted me to move all my funds onto platforms for a better service.
Hope this helps.
@Alex #56
I think I’m agreeing with a lot of your numbers
You pay 8000 from net cash which ends up as 10000 in your SIPP.
You get 2000 credit as HR tax relief. Then you get a further 2000 off your tax bill as 10000 * 0.5 is added back to your personal allowance.
So so far that’s 4000 net cash to get 10000 in the SIPP. You then pay AA charge of 4000. So 10000 in pension costs you 8000 in after tax cash.
If you take out at 40% tax even with TF you only get 7000 back out from the 8000 cost.
@Jam #70
HL recently assisted me with a switch from Acc to Inc. To achieve this, the fund had to have the Inc units in exactly the same class in the fund and the request had to be made in writing and was I believe, forwarded to the fund manager to make the switch. This then happened within a couple of weeks and did need a little tidying up to capture the original purchase cost, but was quite painless.
PS I’m a long time lurker who is extremely thankful to the Investor and Accumulator and the many very knowledgeable contributors – finally I have found a topic that I can contribute something to!
@clive #70
I knew platforms could potentially do it, although the platform I was using wouldn’t even do it as a special request. Out of interest, how much did they charge you?
@Jam I’m not aware of any charge for doing this exchange
@Confuzed (#59)
The IFS has a nice article on ‘where the money goes’ at https://ifs.org.uk/taxlab/taxlab-key-questions/what-does-government-spend-money
As far as I can tell, the answer is related to demographics. Two of the largest areas of expenditure are health and social security (pensioners) – we live longer and spend more money on helping us live longer. Assuming that at some stage the NHS disappears then this trend will reverse (at least for those who cannot afford medical insurance). It is interesting to note that, IIRC, the population life expectancy in the UK is higher than that in the US both at birth and at 65, but that by an age of about 75 or so that reverses (one possible interpretation is that poorer Americans die at a higher rate after 65, leaving the richer ones with medical insurance and excellent facilities to live longer).
The shocks of the GFC, the pandemic, and the end of QE have not helped debt management and costs either.
The colours on the tax twister graph did not go unnoticed. Zelensky is a hero